March 14, 2013

Historic math and hidden factors How Mitra drove the ‘growth’

By DEVADEEP PUROHIT

THE TELEGRAPH, Tuesday , March 12 , 2013

Calcutta, March 11: Finance minister Amit Mitra today claimed “historic”
success by the government in increasing revenue by around 30 per cent, the
figure creating an impression that economic activity in Bengal has grown
significantly in the current financial year.

But the fine-print suggests he should thank many factors other
than increased economic activity in the state for the feat.

“In this financial year, our revenue collection target was fixed
at Rs 31,000 crore (taking the growth rate at 25 per cent). You will be happy
to know that we will exceed the targeted tax collection (according to revised
estimates) and cross the Rs 32,000-crore-mark. Even this is a historic
all-time record,” Mitra said while presenting his second full budget today
amid table-thumping from the treasury benches.

Here are Mitra’s numbers: he set a tax revenue target of Rs
31,222.25 crore in his last budget for this financial year. The revised
estimates say the revenue realisation touched Rs 32,405.21 crore – 30 per
cent more than that in 2011-12.

A closer look at what drove this 30 per cent growth tells a
story Mitra did not recount today. A mixture of a new entry tax, a one-time
spike in power duty, a surge in coal cess because of a change in central
policy, the multiple increases in petro-product prices and a hard squeeze on
the tipplers of Bengal is the principal factor behind the “30 per cent” jump.

These five factors plus stamp and registration fee — a telltale
sign of the state’s sole thriving business of real estate — account for Rs
4,769 crore. Few of these drivers can be termed as the results of the Mamata
Banerjee government’s work. Rather, Manmohan Singh’s petro price policy, much
maligned by the Trinamul Congress, has played a role in helping Mitra reach
the “historic” landmark.

If the largely serendipitous factors are taken out of the
revenue pot, the revised budget figure will come down to Rs 27,636 crore
against Rs 24,938 crore the year before. Or, from 30 per cent, the growth
rate plunges to 11 per cent.

This suggests that shorn of the serendipitous factors, the rate
of revenue growth is expected to be more in line with — if not lower than —
what the Left had clocked when it was in power.

Besides, the 11 per cent growth reflects more faithfully the
ground situation in Bengal, where the government’s hands-off land policy and
its failure to attract big industry are showing up in listless economic
activity.

The new government has taken some revenue mobilisation
initiatives like simplification measures and e-governance initiatives, which
have thrown up positive results, but they alone cannot trigger a 30 per cent
growth.

“If one concludes that the 30 per cent growth in revenues means
heightened economic activity in Bengal, there is a mistake,” said a senior
state government official.

According to him, an analysis of sales tax mop-up in the last
few years can explain that there has been no remarkable change in the level
of economic activity. Sales tax collection is a better indicator of economic
activity.

On the sales tax front, Mitra has failed to meet his budget
target of 29 per cent hike. His mop-up this fiscal year is 19.5 per cent more
than 2011-12 (actual). A year before -— between 2010-11 (budget estimate) and
2011-12 (actual) —sales tax collections had grown by around 29.6 per cent.
For 2013-14, Mitra has projected a modest 12.9 per cent growth over the
budget estimate of 2012-13.

“It is evident that even the finance minister is lowering his
sales tax growth target. This is not a good sign as the sales tax mop-up also
includes earnings from petroleum products through cess and surcharge,” said
an official.

“This year’s rise is primarily because of some one-time spikes
under some heads,” added another official.

One of the key elements in the list is the local area entry tax
that Mitra had introduced in his budget last year. Budget documents reveal
that the mop-up on this account — mentioned as taxes on goods and passengers
— has been Rs 1,250 crore.

Such steep hikes can be seen under some other heads as well,
which, officials warn, will not be available in other years.

Take, for instance, the case of taxes and duties on electricity,
under which the government has earned around Rs 800 crore extra in comparison
to 2011-12.

The high income from electricity duty, according to sources in
the power department, had accumulated over two financial years as the
state-owned power utilities had been unable to pay duty for most of 2011-12
because chief minister Mamata Banerjee had not allowed a power tariff hike
till December 2011. The subsequent hikes in power tariff also helped.

“The duty was paid in 2012-13 for both years, which is why the
jump appears steep for one fiscal year,” said an official.

Another significant component on the revenue side has been a Rs
400-crore-plus increase over last year in excise collection because of the
government’s decision to allow some liquor off-shops to operate as on-shops
and increase in bar timings.

“All these factors contributed to ensure 30 per cent growth in
revenue this year…. He is unlikely to get the same benefit year after year.
The question is ‘what will happen to his budget arithmetic then’?” asked an
officer.

Unpredictable revenue is not the sole reason behind
apprehensions about the budget arithmetic going haywire. The fiscal
profligacy of the chief minister can burn a big hole in the expenditure
projections of Mitra’s budget ahead of an election year.

The budget documents reveal that Mitra got a taste of Mamata’s
spending spree this year as the budgeted deficit on the revenue account almost
doubled this fiscal year, from Rs 6976.01 crore to Rs 13,308.10 crore.
According to Mitra’s budget estimates, the deficit for 2013-14 will be Rs
3,488.49 crore, around Rs 10,000 crore less than that this fiscal.